UNIVERSITY OF ZIMBABWE

FACULTY OF BUSINESS MANAGEMENT SCIENCES AND

ECONOMICS

ENVIRONMENTAL MANAGEMENT
THM406

ECONOMIC IMPACTS
by
Dr. Edmond Marunda
[email protected]
+263 772 924 156
EdMar
1 Sunday, 16 October 2022
 OVERVIEW ECONOMIC IMPACTS

 A lot of governments justify investment into tourism on its

potential for economic benefits.

 International tourist expenditure is an export from the host

country, much as domestic tourism is an export between local
regions in the country.

 The former is easier to record at borders but the latter is more

difficult.

 Tourist expenditure can only be estimated through expenditure

and exit surveys, mostly each year or every other year.

EdMar 2 Sunday, 16 October 2022

 TOURISM’S UNIQUE CHARACTERISTICS

Tourism is an invisible export industry, there is no

tangible product and consumers tend to make a
purchase before seeing the product first

Tourists require supporting goods and services, existing

infrastructures are expanded and new ones added on

Tourism is a fragmented product comprising transport,

accommodation, as well as landscape and cultural
resources

EdMar 3 Sunday, 16 October 2022

 TOURISM’S UNIQUE CHARACTERISTICS
/ continued
 Tourism is a high price and income elastic product
%change in demand
 Elasticity of demand =
%change in disposable Income

%change in quantity demanded

 Price elasticity =
%change in price

 Tourism is a perishable product, if an airline seat is not used on a

flight then that income is lost

 Tourism is subject to unpredictable external influences, such as

currency fluctuations, politics, motivation, taste and fashion
trends
EdMar 4 Sunday, 16 October 2022
 TOURISM’S UNIQUE CHARACTERISTICS
/ continued
The demand for tourism is governed by three economic
cycles

 Short term economic cycles, these are dependent on

seasonality of demand causing congestion and overcrowding
in the high season

 Medium term economic cycles, dependent on a period of

several years, e.g. natural floods, hurricanes, earthquakes,
weaker currencies etc.

 Long term economic cycles, which products go through over a

long period of time, TALC by R. Butler 1980

EdMar 5 Sunday, 16 October 2022

 CONTRIBUTION TO THE GDP

o World Travel & Tourism Council (WTTC) is the global authority

on the economic and social contribution of Travel & Tourism,
promoting sustainable growth

o Reports that Travel & Tourism generates (9.8% of global GDP) and
supports over 284 million jobs, equivalent to 1 in 11 jobs in the
global economy.

o The Travel & Tourism sector is expected to grow faster than the
wider economy industries over the next decade.

o It is anticipated to support over 370 million jobs by 2026.

 MAGNITUDE OF ECONOMIC IMPACTS

 Mathieson and Wall 1982, magnitude of economic impacts which

determine whether tourism will be positive or negative are
depended on:
 The type of tourism facility and attraction for tourists
 The volume and level of tourist pending
 The level of economic development in the region
 The extent to which tourist spending is maintained and
circulated throughout the region
 The extent of seasonality in the region
 TAX BENEFIT TO THE STATE

 Tourism’s economic benefits gained by government from taxes & duties on

things tourists use and buy, e.g. bed levies or, tourism levy in Zimbabwe,
and other taxes.
 University of Dar es Salaam (1970)showed that
 for every tourist dollar spent 40 cents goes on to imports, 40 cents to
private hotel and other businesses and 20 cents to the government in
the form of taxes.
 This meant that for every $1000 spent by tourists in Tanzania $200 went
to the state in the form of taxes.
 Translates to Government revenue multiplier (GRM) of 0,20
 In the USA the State gets ca. 6cents in the dollar, making it $60 for every
$1000 spend by tourists. GRM of 0,06
 15 cents in the dollar for India, making it $150 for every $1000 tourist spend.
GRM of 0,15
 It is estimated much higher for Zimbabwe, At 0,6
 FOREX EARNINGS

 Forex earnings figures are gross amounts and do not take into
account the real cost of imports found in the industry. Machinery,
cars, food etc. is imported.

 Questionable is the use of foreign exchange earnings as a judge of

the importance of the industry.

 Forex earnings help maintain the stability of local currencies

 Forex earnings also help in contributing to a favourable balance of

trade as an invisible export.
 IMPROVEMENT IN SOCIAL SERVICES

 Social problems of depopulation of rural areas due to pressure

on land are reversed and families are not disrupted.
 Linkages, entertainment and cultural activities developed for the
tourists are also available to the hosts.
 Tourism leads to the redistribution of wealth by bringing
income, development and new jobs to remote areas.
 An equitable distribution of economic activities by region of the
country is encouraged
 Balancing the geographical distribution of the population in
that disadvantaged regions can be connected and jobs created in
those regions small and seasonal businesses thrive.
 Seasonal visitors who spend their money in the country
create short-term revenue in the tourism and hospitality
sector that helps these businesses achieve year-long stability
 IMAGE BUILDING

When tourists visit they learn about the destination and

build a good image of the country, when they become
acquainted with its culture, its climate and its people.
 EDUCATIONAL SIGNIFICANCE

Close contact between people of different races, cultures,

and nationalities enhances education about one another,
in the form of study tours, exchange programmes,
seminars, and conferences.

Tourism helps to further enhance technological

exchanges, brings about religious tolerance, and
promotes sporting activities by planting a sense of cultural
exchange between foreigners and citizens
 CULTURAL SIGNIFICANCE

Tourism promotes culture and often it is accompanied

by cultural exchanges, of art, dance, literature, music,
cuisine, architecture and history.
 EMPLOYMENT

 Tourism helps support local businesses and fosters

entrepreneurship and new business ventures with 80% of the
sector composed of SMEs
 Tourism development brings with it high employment as
compared to the other industries.
 World-wide employment is over 255 million or more than 10%
of the world’s workforce.

 However, the value to the nation for this employment generation

can be questioned by comparing to jobs generated by an
equivalent investment in the labour intensive textile industry for
example.

 Jobs distribution has to be analysed because in tourism the jobs

are scattered in the less developed areas
 EMPLOYMENT
cont..

One of every two persons in Hawaii is employed by

tourism. Hawaii had 8,3 million tourists in 2014 - 6 times
more than the local population of 1,42 million.

Eleven million jobs in the EU are directly related to

tourism, of which 70% are involved in domestic tourism
alone.
 DIRECT EMPLOYMENT

Direct employment, from expenditure on tourism

facilities like hotels restaurants, travel/tours, and tourist
retail outlets.

 Has direct effect - is the injection of money and

demand from an external source, i.e. an increase in
export.

 An increase in tourist activity brings with it more

direct employment.
 INDIRECT EMPLOYMENT

Indirect employment in businesses affected by tourism still in the

tourism supply sector but not resulting directly from the tourism
spend
 local transport, handicrafts, banks, agriculture, fisheries and
manufactures.

 Has indirect effect - flow in expenditure of a tourist dollar

though the economy of the destination.

 Indirect demand for employment is also created in other areas,

i.e. agriculture, horticulture, manufacturing, the sector
catering to tourist needs.
 INDUCED EMPLOYMENT

Induced employment arising from the spending of

money by locals from their tourist incomes. Also
included is construction work building of a new resort or
airport etc.

 Has induced effect - employment created by the

diffusion of receipts from direct and indirect
beneficiaries.

 Also called downstream employment.

 GENERALISATIONS ABOUT TOURISM EMPLOYMENT

 There is a close but not perfect correlation between the income

generating effects of tourism and the creation of employment.
o High returns from the industry do not correspond directly
into proportionately more jobs

 The kind of tourist activity influences employment, jobs in

restaurants and bars have been shown to provide more
employment than hotels and motels.
o There is high job turnover and the kind of training offered by
hotel schools world-wide caters for on-the job vocational
skills
o Does not educate workers into dealing with the complex
issues arising from hedonism
 GENERALISATIONS ABOUT TOURISM EMPLOYMENT
/continued
The type of work skills available locally, result: usually high
demand for unskilled labour mostly filled in by women and
senior jobs by expatriates.
 Women are presumed to be capable of cleaning, washing,
cooking and serving.
 Tourism is a labour intensive industry, the main demand being
for semi-skilled and unskilled workers.
 Mathieson & Wall (1980), “…of the 80% employees in the
tourist labour force only 4% are in managerial or professional
occupations”. These are mostly expatriates
Tourism may take skilled labour from other sectors of the
economy, resulting in little effect on overall unemployment
 Uses part time workers engaged elsewhere in other industries.
 GENERALISATIONS ABOUT TOURISM EMPLOYMENT
/continued

Much employment is seasonal, more are employed

during the high season.
 This results in part time employment creation which in turn
results in consequential opportunity cost in career or self
development for employees.

Tourism employment maybe in conflict with traditional

life patterns.
 Esp. when young female employees have contact with male
guests, working when they would normally be at church,
temple or mosque.
 BALANCE OF PAYMENTS SUPPORT
 An increase in spending by tourists raises national income.
 On the other hand an increase in spending by nationals
abroad lowers the national income.
 The net figure of those two gives the balance of payments
support figure which could be a net surplus or deficit on the
tourism account of a national economy.

 For rich and developed countries like Japan and Germany an

unfavourable balance in tourism is an investment.
 It provides greater economic stability in the world to boost
trade and investment.
 Huge trade surpluses in these countries can be spend by the
nationals when they tour.
 The USA has the most positive balance of payments account.
 CATEGORISATION OF TOURIST EXPENDITURES
1. Primary effects, these arise out of currency flows from foreign visitor
expenditure in a host country and outflows coming from the spending
abroad by residents. Recorded by banks, businesses and are easy to measure.
2. Secondary effects, arise as the direct expenditure is gradually felt in
other sectors of the economy.
Divided into three categories
i. direct sec. effects (travel agents commissions)
ii. indirect sec. effects as the tourist service industry passes some of
its earnings to other businesses (when airlines contract other
companies for the supply of on-board meals)
iii. induced sec. effects wages of those employed producing tourist
goods and services. Foreign employees remit their incomes.
3. Tertiary effects are the currency flows which do not come from direct
tourist expenditure and relate to investment opportunities stimulated by
tourist activity. E.g. When Japanese started buying sheepskin products in
New Zealand it leads to the growth of industry to export them abroad.
 ECONOMIC COSTS OF TOURISM
/OPPORTUNITY COSTS
 The production of tourist goods and services produces opportunity
costs and the commitment of resources that might otherwise be used
for alternative purposes.
 This may involve labour migration from rural to urban when there is
investment there but this brings with it other economic implications.
 Example by Young (1973) case of St. Lucia where tourism
attracted population from the local banana industry which was
the main forex earner.
 Those left on the land could not cope with the intensive labour
requirements of the banana crop resulting in the collapse of the
industry.
 Tourism then led to massive increases in food imports as well as a
great strain on the balance of payments. The net benefit to the
Island of the new industry was therefore marginal
 ECONOMIC COSTS OF TOURISM
/LEAKAGES
Leakage may occur through:
 Repatriation of profits generated from foreign capital investments
(dividends)
 Vertical integration
 Not sourcing goods and services locally, there is increased pressure to
import to satisfy visitors demands and aspirations, raw materials,
machinery, carpets, glass and pottery, curtains, sheets, fabrics, etc..
 Payments being concluded to a large extend in the generating country.
Enclave tourism - Local businesses often see their chances to earn
income from tourists severely reduced by the creation of "all-inclusive"
vacation packages.
 Skilled labour may be imported resulting in the repatriation of forex.
 Ownership of transport modes used by visitors, like national airline
 Well developed destinations have mechanisms to compete with
foreign imports through their own supply industries.
 ECONOMIC COSTS OF TOURISM
/LEAKAGES IN ZIMBABWE
Well developed destinations have mechanisms to compete with
foreign imports through their own supply industries. Leakage is
high in Zimbabwe because
1. Zimbabwe has few industries producing goods and services
to support tourism
2. There is inadequate distribution systems
3. Franchises are widespread in the hospitality and tour
operations sector
4. Visitors use foreign transportation to access the destination
 ECONOMIC COSTS OF TOURISM
/ DISPLACEMENT EFFECT

 Account must be taken for tourism investments and their

opportunity costs, called the displacement effect e.g. When a
new hotel complex is built because the existing ones are doing
well but the new one only takes business away from the old ones
and no new tourist arrivals are recorded.
 ECONOMIC COSTS OF TOURISM
/DEPENDENCY

Over-dependence on tourism, Small economies heavily

dependent on tourism are badly affected by changes in
tourism traffic, e.g. Due to changes in tourism fashions
dictated by Trans-national travel groups leading to
diminishing standards and poor publicity.

The concentration index is used to identify the level of

dependency on one or more generation countries:

Tourist arrivals from primary markets

Concentration index = all arrivals
∗ 100
 ECONOMIC COSTS OF TOURISM
/ INFLATION

 Increasing demand for basic services and goods from tourists

will often cause price hikes that negatively affect local
residents whose income does not increase proportionately.

 Inflation, increases in retail prices in shops during the high

season, and steeply rising land values leading to a general
rise in home costs and property taxes.
 ECONOMIC COSTS OF TOURISM
/ SEASONALITY OF DEMAND

 Seasonality of demand - Fluctuations can be due to the time

of year: - summer and winter time, snow time, school
holidays, work holidays and special events time
 seasonal employment can follow because of the
fluctuations, leading to overcrowding, over-bookings, high
prices, and customer dissatisfaction.

 Revenues from the high or shoulder seasons must sustain the

destination for the rest of the year.

 Employees also have jobs for only part of the year.

 Tourism operations can also lie idle for long periods of
time as some close down completely.
 ECONOMIC COSTS OF TOURISM
/ HEAVY INFRASTRUCTUR COSTS

 Developers may want the government to improve the airport,

roads and other infrastructure, and possibly to provide tax
breaks and other financial advantages, which are a cost.
 Public resources spent on subsidized infrastructure or tax
breaks may reduce government investment
 Incidental costs of:
 extra tourist police services,
 water supply and sewage treatment,
 park and recreation facilities,
 maintenance of museums and historic sites, health
facilities, prophylaxes, etc.
 ECONOMIC COSTS OF TOURISM
/ INCOME AND EMPLOYMENT

Better paying managerial posts may not be available

to locals.

If care is not taken the income generated from

tourism may not benefit the poorest in society

The industry is also a service industry with poor

productivity prospects.
 ECONOMIC COSTS OF TOURISM
/ ECONOMIC CRISES

 Economic crises like:

 the Asian crisis that hit Thailand, Malaysia and
Indonesia (1997), can be devastating to inbound tourism
flows.

 The financial turmoil triggered a sharp fall in tourism

flows to affected countries during 1997 and 1998.

 The crisis and the temporary closure of Philippine

Airlines affected inbound arrivals significantly as there
was a decline of almost 3.3% in 1998.
END OF LECTURE

Thank you

Have a Good day !

God bless you